Labor-law infractions cost these construction firms more than cash

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Local construction firms that aren’t following labor laws to the letter need to get their act together in the wake of a $1.42 million settlement between the U.S. Department of Labor and four related Long Island City plumbing and heating contractors, small-business advisers say. With federal, state and local officials on the lookout for violations in an industry where they are common, the cost to small firms that get nailed can be steep, time consuming and stressful.

“They want to start getting everyone into compliance,” said CPA Paul Gevertzman, a partner at Anchin Block and Anchin who works with many contractors.

Here is the case that caught the attention of industry watchers and advisers in part because it was so ordinary. In late April, the Labor Department reported it had obtained a settlement to recover $1.42 million they collectively paid in back wages for more than 300 current and former employees of the four businesses, plus liquidated damages. The firms are Danica Group, Copper Plumbing & Heating, Copper II Plumbing & Heating and Copper III Plumbing & Heating.

According to the Labor Department, the businesses are owned by Thomas, Helen and Leonidas Andreadakis. Thomas and Helen are a married couple and Leonidas is their son, according to their attorney, Larry Hollander, a senior partner at Hollander Law Group, based in Great Neck, L.I.

Mr. Hollander said the companies are paying what they owe. That includes $710,000 in back wages for the period from September 2010 to April 2014 and an equal amount in liquidated damages.

“Resolving cases is often the most economical way to handle litigation,” Mr. Hollander said.

In the investigation by the New York City District Office of the Department of Labor’s Wage and Hour Division that led to the case, the agency found that the four firms violated the Fair Labor Standards Act by failing to pay employees time and a half when they worked more than 40 hours a week. The department said the contracting firms cut separate paychecks for the overtime hours from a -petty-cash account, often paid employees late—sometimes as long as several weeks—and kept “incomplete and inaccurate” payroll records.

Significant help

The firms also misclassified at least 25 employees as independent contractors, the department found. “All relevant taxes are being paid as part of the settlement,” Mr. Hollander said.

He added that many of the workers performed their duties for the company for only a short time. “Some workers will only receive a minor amount of money, like $100,” he said.

But Christopher McNerney, a Manhattan-based employment attorney at Outten & Golden, notes that the case helped a significant number of workers. Mr. McNerney assists workers at a clinic on wage theft for New Immigrant Community Empowerment, a nonprofit in Flushing. In the construction industry, one of the most common infractions he sees is a failure to pay workers overtime. Some firms instead pay them a flat day rate, he said. Another frequent violation, according to Mr. McNerney, is failing to give workers their final paycheck on a project.

Firms that comply with the law get hurt when rivals don’t, he added. “When some companies misclassify their workers and violate the law, that leads to an unfair competitive advantage for them versus other companies in their area,” Mr. Mc-Nerney said. “If you’re an employer who is following the law, you should welcome decisions like this.”

In the case of the Long Island City contractors, it isn’t clear what sparked the investigation. “The Wage and Hour Division does not say what specifically triggers an investigation,” a spokesman from the department’s regional division said in an email.

State and local officials have put a special emphasis on identifying misclassification in the state’s construction industry, where it is widespread, according to a February 2015 report by the Joint Enforcement Task Force on Employee Misclassification, a group of state and local agencies.

In 2014, the task force conducted one sweep of a New York City area construction site and five sweeps in the rest of the state. Those probes led to investigations that uncovered nearly 230 misclassified workers, the report says. Employers were found to owe $2.7 million in unreported wages, nearly $104,000 in unemployment insurance contributions, and fraud penalties.

Christopher Parlo, a partner in the employment practice at Morgan Lewis in Manhattan who represents employers, says in cases of misclassification, employers may not hold all the blame. Sometimes, he says, workers are party to it.

Not all employers’ fault

“Often, those workers want to be independent contractors or paid off the books—or partly on the books and partly off the books,” said Mr. Parlo. “To purely blame employers for the existence of these situations is very narrow-minded or short-sighted.”

Mr. Parlo said he has been involved in some cases in which workers threatened to quit an employer who wanted to classify them as employees unless they were instead granted the status of an independent contractor. “Sometimes, those workers are critical to a job,” he said. “They have a lot of leverage.”

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